Despite rising fintech adoption, reliability concerns weigh on Pakistan’s digital payments ecosystem

Despite rapid growth in fintech adoption, Pakistan’s digital payments ecosystem continues to lag, as frequent card transaction failures and restrictions on international payments undermine user confidence, according to sector experts.

Businesses also suffer due to fragmented payment gateways, regulatory bottlenecks, and low digital trust, they said.

Speaking to Business Recorder about key challenges for online consumers including failed transactions, limits on international payments, low card acceptance, and security concerns, U Microfinance Bank President & CEO Tooran Asif said Pakistan’s digital payments landscape had made “meaningful progress, with growing fintech adoption and increasing consumer usage”.

“The key challenges today stem less from adoption itself and more from fragmented execution, & cautious risk frameworks,” he maintained.

“As a result, consumers sometimes experience card declines, limited international payment access, uneven online acceptance, and lingering security concerns, while businesses navigate multiple payment gateways, lengthy onboarding processes, and regulatory uncertainty.“

Asif was of the view that the opportunity now lies in “focused, practical improvements that can deliver results quickly”.

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Failed transactions could be significantly reduced through better issuer–network coordination and the adoption of risk-based 3DS authentication, ensuring that only higher-risk transactions required additional verification, he added.

“Instead of broad international payment restrictions, use-case-based foreign exchange limits—for e-commerce, subscriptions, education, and freelancing—can enable legitimate activity while maintaining regulatory oversight through automated reporting.

“Card acceptance can be strengthened by expanding merchant enablement across local gateways and introducing smart routing between cards, wallets, and bank transfers when a preferred payment rail is unavailable,” he said.

At the same time, Asif continued, consumer confidence could be reinforced through faster dispute resolution, clearer chargeback rights, real-time transaction alerts, and broader public awareness of fraud protection measures.

“These steps rely on policy alignment and operational refinement rather than new infrastructure investment, and together they can materially enhance the digital payments experience for both consumers and businesses within the next 6–12 months.”

Talking about reforms, innovations, and industry collaboration, analyst Jamil Arif said Pakistan required a “Grand Bargain” to unlock a seamless experience, focusing on tax rationalisation and infrastructure interoperability.

“First, the government must implement a Digital Tax Shelter for small merchants, replacing complex audits with a fixed turnover tax to alleviate the fear of documentation that hinders P2M [Person-to-Merchant] adoption.

“Second, the SBP [State Bank of Pakistan] must mandate Open Banking APIs, allowing agile fintechs to manage the user interface while banks handle the ledger.”

Arif further said industry collaboration was critical for establishing a Centralized Fraud Management System to restore eroding consumer trust.

“The ecosystem must transition from the current Rs3.5 billion Raast subsidy to value-based models where banks monetise merchant data for credit scoring rather than charging transaction fees.”

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Commenting on growth of Pakistan’s digital economy, he said the “missing backbone” was less about the central switch (Raast) and more about the fragility of “edge nodes” commercial banks and internet connectivity.

“While digital channels captured 88% of retail transaction volume in FY25, the ecosystem remains brittle; internet disruptions cost the economy an estimated $1.62 billion in 2024 alone.

“Scalability is currently bottlenecked by legacy banking software that crashes under high concurrency, failing to support the gig economy’s real-time demands. Furthermore, a “sticky cash“ culture persists because the digital loop breaks at the merchant level. True scalability requires upgrading banking cores to cloud-native stacks and ensuring consistent connectivity to support the 38% year-on-year surge in transaction volumes,” Arif said.